The thoughts of Michael Cadwallader. Coffee loving, history book reading, Cheshire man.

Monday, August 13, 2007

Panic Over?

It looks like the great panic is over, for now. The markets were in the green today after heavy losses last week, including a disastrous trading session on Friday.Being the Stock Market we can't say for certain whether this is the bottom, although I would imagine we are fairly close to it.What it has revealed, and will reveal further if there are any more heavy losses, however, is the knife-edge that the whole debt-based financial system lives on.

To a short-term bull and long-term bear like myself, it doesn’t really look like things have actually changed that much.Corporate profits are still good and they should be the main marker for the performance of stocks and shares.Moreover, that elusive recession seems to be somewhere on the horizon but is certainly not close enough to really worry about. So in all reality this is solely about debt, and central banks who give platitudes about Adam Smith and liberal markets but to whom John Maynard Keynes is still the role model.That is why I am calm about the near future; central banks will simply not allow the debt-based economy to collapse.At the first sight of any signs that the economy may be in difficulty, liquidity will be flooded in and interest rates slashed.

What about inflation,I hear people say, haven't the central banks said they are going to fight it?Well, yes, the central banks have talked about inflationary concerns over the last couple of years, and interest rates have been raised accordingly.But, in all reality, faced between the choice of the whole debt edifice collapsing around their heads and inflation being set loose, I think they will choose the easy option. Ergo, inflation will be set loose, and we all know what I believe is the remedy for this.